Fintech
Why a US fintech boss believes London is about to create ‘lots of new winners’
Simon Khalaf became CEO of Marqeta last January
The boss of a US fintech giant has said London boasts more innovative companies than rival cities overseas, with a funding revival set to create “many new winners” in the sector.
This was stated by Simon Khalaf, CEO of the card issuing company Marqeta, listed on the Nasdaq City AM that investors are now more selective in the start-ups they back following a decline in overall appetite for funding on both sides of the Atlantic.
Fintech valuations generally peaked in 2021, with the sector having since struggled with interest rate hikes and higher financing costs which hindered investments.
“Most of this was related to the overhyping of cryptocurrencies,” Khalaf said. “In the end, good companies that have solid business models and great product-market fit got funded. I would say there has been a lot more money invested in healthier deals.”
He added: “So while I would say the distribution of funding has changed – more money has gone to fewer fintechs – the amount is still strong enough to create a lot of new winners in the sector.”
The UK has been particularly hard hit, with a torrid 2023 seeing investment in the country’s fintech sector fall by more than a third compared to the previous year. according to KPMG.
But there are hopes for a recovery, which can already be seen in 2024 Monzo digital bank land $610m (£490m) in new funding and Flagstone savings platform secure £108m from US private equity.
Khalaf was optimistic about the UK’s prospects, arguing that London and other European hubs are naturally more innovative than their US rivals as they cannot rely as much on revenue from interchange fees.
“The main difference is that in the US the trade is higher than in the EU and the UK, so there is a lot more money that fintechs have managed to grab,” he said.
“So UK and EU-based fintech companies, or the customers who use them, have had to innovate faster and smarter because they have to find other ways to generate revenue.”
Oakland-based Marqeta is expanding into these markets, with Khalaf predicting that the company’s headcount growth in Europe will outpace U.S. hiring in the near term.
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The firm, which has a market capitalization of almost $2.8 billion (£2.2 billion), last month partnered with London-based bank Oaknorth to facilitate a new merchant debit card for its SME customers .
Khalaf also singled out French payments app Lydia, German rival Trade Republic, London-based SME lender Capital on Tap and Swedish buy now pay-later giant Klarna as some of the most promising start-ups in ‘Europe.
Price list crisis
The UK government has proposed a series of capital market reforms and other sweeteners to make the country a more attractive place for fintechs to launch, grow and list.
This comes after the London Stock Exchange was hit by a shortage of large IPOs and major players abandoned their listings in the capital for better returns overseas.
Some have been tempted to float to the United States, which offers a larger capital pool and higher valuations, particularly for technology companies. Meanwhile, many of the UK’s largest fintech unicorns are focused on expanding operations across the Atlantic for their next phase of growth.
Khalaf said the cross-border nature of financial services naturally encourages an international approach. “The fact that this is a global phenomenon will drive people to more markets,” she said.
“The regulatory contexts are different. It is very difficult to get a banking license or a money transfer license in the US, and not worth it, while in the EU it is something that is almost impossible to do without. But from a consumer adoption perspective, I see strong similarities.”
He added that the “vast size” of untapped markets in the United States offers ripe opportunities for fast-growing companies.
“The United States is a credit card country, while Germany is a debt country,” Khalaf said. “But actually if you dig deeper into the US you see a bigger debt market than Germany – it’s almost double.”